For decades, the fastest way to transfer funds between banking institutions was via ACH (Automated Clearing House) or wire transfers. ACH transfers require 1-3 days, while wire transfers are near-instant, but usually command hefty fees and are preferred for high-value transactions. But Real-Time Payments(RTP) technologies bridge the gap between them.
Through real-time payments, users are afforded the speed of a wire transfer with the increased security of ACH transfers for everyday transactions, at lower costs, and through convenient applications.
What Are Real-Time Payments?
Real Time Payment (RTP) is the newest payment processing network technology, facilitating the near-instantaneous transfer of immediately available funds from one financial institution within the network to another. In the US, RTP was not available until 2017, when it was launched by The Clearing House and popularized by Zelle.
Since then, RTP applications like Zelle, Venmo, and CashApp have become so ubiquitous that they have entered the cultural lexicon, and most banked individuals have some familiarity with the platform. In countries like Mexico and Brazil, RTP platforms like CoDi and Pix have been introduced by their governing bodies to increase banking inclusion and accelerate the adoption of digital transactions.
Real-Time Payment vs. ACH and Wire Transfers
Though there are similarities between ACH transfers, wire transfers, and RTP transfers, they operate on separate payment rails, with different encryption, oversight, and management processes.
Unlike ACH transfers, RTPs bypass the 1-3 business day wait. And RTPs are even faster than wire transfers – virtually instant – and carry less risk of fraud. And RTP transfers are available 24/7, any day of the year, with no need to wait for business days or banking hours. This makes real-time payment transfers perfect for casual, day-to-day user transactions.
Evidence suggests that on average, the adoption of digital payments can increase GDP by up to 3 percent. Despite this, global adoption of RTP has been uneven, with growth concentrated in India, China, and Brazil, while lagging in the US and UK. What can be done to encourage the pace of adoption? Here are the top items on the digital payment user wishlist.
Customers demand the ability to make quick, simple payments that don’t interrupt the flow of their day. Removing as many barriers as possible between the user and the completed transaction is a guaranteed path to increased adoption.
Technological advancements in user verification – including biometrics – can simplify and streamline the login process. The fewer taps between the user and the completed transaction, the better.
High-Security, Trustworthy Platforms
One of the most commonly cited reasons for resistance to RTP and other digital wallet options is fear of hacking and cyber-attacks.
To overcome this ‘trust gap,’ it’s critical to employ the most up-to-date security measures and ensure that users are aware of the layers’ protections incorporated into the platform. One example is tokenization, which removes account numbers from the transaction to reduce the risk of account-based fraud.
Increasingly, users want to see deeper integrations of payment systems allowing them to make transfers directly within the platforms and applications they already frequent – like WhatsApp, Facebook, and Instagram – without logging into a separate application. They want to shop, send money to a friend in need, or donate to a charitable cause while remaining within the social media app.
On the other end of integration, users anticipate being able to transfer funds outside their specific application. Currently, most P2P (peer-to-peer) real-time payment applications are ‘closed loop.’ This means a Zelle user cannot send an RTP transfer to a Venmo or CashApp user. Transfers outside the application may still be pushed through, but ACH transfers instead, with the associated delay. Customers look forward to seeing broader interoperability, which in turn will drive faster adoption.